ACIT, Chatrapatti V. M/s. Beach Minerals Co. Pvt. ltd., CHENNAI

ITA 3040/CHNY/2016

• Counselvise Citation: [2018] 119 COUNSELVISE.COM (IT) 1534 (ITAT-CHENNAI)
• Duration Of Justice: 2 year(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 08-11-2018
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 18-07-2017
• Assessment Year: 2011-2012
• Appeal Filed On: 27-10-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: DR M SHANMUGA PRIYA
• Keywords: Earning of tax free income; Deemed to accrue or arise in india
• Section: 143(3); 14A; 115JB; 10

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL , B B ENCH, CHENNAI . . . , . , ! BEFORE SHRI N.R.S. GANESAN, JUDICIAL MEMBER AND SHRI A.MOHAN ALANKAMONY, ACCOUNTANT MEMBER ./ I.T.A.NO.3040/CHNY/2016 ( / ASSESSMENT YEAR: 2011-12) THE ACIT, CORPORATE CIRCLE 1(2), CHENNAI 34. VS M/S. BEACH MINERALS COMPANY PVT. LTD., NO.32/2, BMC HOUSE, HALLS ROAD, EGMORE, CHENNAI 600 008. PAN: AADCB3450D ( /APPELLANT) ( /RESPONDENT) /APPELLANT BY : DR.M. SHANMUGA PRIYA, JCIT /RESPONDENT BY : SHRI RAGHAV MENON, ADVOCATE /DATE OF HEARING : 21.08.2018 /DATE OF PRONOUNCEMENT : 08.11.2018 / O R D E R PER A. MOHAN ALANKAMONY, AM:- THIS APPEAL BY THE REVENUE IS DIRECTED AGAINST THE ORDER PASSED BY THE LD. COMMISSIONER OF INCOME TAX (APPEALS)-1, CHENNAI DATED 18.08.2016 IN ITA NEW NO.ITA7/CIT(A)-1/2014-15 FOR THE ASSESSMENT YEAR 2011-12 PASSED U/S.250(6) R.W.S. 143(3) OF TH E ACT. 2. THE REVENUE HAS RAISED SEVERAL GROUNDS IN ITS AP PEAL HOWEVER THE CRUXES OF THE ISSUES ARE THAT 2 ITA NO. 3040/CHNY/2016 (I) THE LD.CIT(A) HAS ERRED IN DELETING THE ADDITIO N OF RS.2,53,31,893/- MADE BY THE LD.AO BY INVOKING THE PROVISIONS OF SECTION 14A R.W.R. 8D OF THE RULES. (II) THE LD.CIT(A) HAS ERRED BY HOLDING THAT DISAL LOWANCE U/S.14A CANNOT BE MADE WHILE ARRIVING AT THE BOOK PROFIT FO R THE PURPOSE OF COMPUTING MAT U/S. 115JB OF THE ACT. (III) THE LD.CIT(A) HAS ERRED IN DELETING THE ADDIT ION OF RS.4,68,31,841/- MADE TOWARDS DISALLOWANCE OF REPAI R AND MAINTENANCE CHARGES. 3. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSE E IS A PRIVATE LIMITED COMPANY ENGAGED IN THE BUSINESS OF MANUFACTURING, P ROCESSING AND EXPORTING OF PULVARISED GARNET ABRASIVES GRIT, FILE D ITS RETURN OF INCOME FOR THE ASSESSMENT YEAR 2011-12 ELECTRONICALLY ON 3 0.09.2011 ADMITTING TOTAL INCOME OF RS.52,14,950/-. INITIALLY THE RETUR N WAS PROCESSED U/S.143(1) OF THE ACT AND SUBSEQUENTLY THE CASE WAS SELECTED FOR SCRUTINY UNDER CASS AND NOTICE U/S.143(2) OF THE AC T WAS ISSUED ON 07.09.2012. FINALLY ASSESSMENT ORDER WAS PASSED U/S .143(3) OF THE ACT ON 12.03.2014 WHEREIN THE LD.AO MADE SEVERAL ADDITI ONS AMONGST WHICH CERTAIN ADDITIONS WAS MADE BY INVOKING SECTIO N 14A R.W.R.8D OF THE RULES AND DISALLOWANCE OF REPAIRS & MAINTENANCE EXPENDITURE. 3 ITA NO. 3040/CHNY/2016 4. GROUND NO. 2(I) & (II) : DISALLOWANCE OF EXPENDITUR E INCURRED TOWARDS EARNING EXEMPT INCOME U/S.14A R.W.R.8D OF T HE RULES WHILE COMPUTING THE TAXABLE INCOME OF THE ASSESSEE AS PER NORMAL PROVISIONS OF THE ACT AND MAT PROVISIONS WITH RESP ECT TO SECTION 115JB OF THE ACT:- DURING THE COURSE OF SCRUTINY ASSESSMENT PROCEEDI NGS, IT WAS OBSERVED BY THE LD.AO THAT THE ASSESSEE HAD MADE IN VESTMENTS TO THE TUNE OF RS.84,12,83,570/- AS ON 31.03.2011 AND RS.7 1,55,33,570/- AS ON 31.03.2010. THE DIVIDEND INCOME ARISING OUT OF T HESE INVESTMENTS WERE NOT TAXABLE. THE LD.AO WAS OF THE VIEW THAT TH E ASSESSEE WOULD HAVE INCURRED SOME EXPENDITURE FOR EARNING THE EXEM PT INCOME AND THEREFORE INVOKED THE PROVISIONS OF SECTION14A. THE REAFTER THE LD.AO WORKED OUT THE DISALLOWANCE IN ACCORDANCE WITH RULE 8D OF THE RULES AMOUNTING TO RS.2,53,31,893/- AND ADDED TO THE INCO ME OF THE ASSESSEE. 4.1 ON APPEAL THE LD.CIT(A) DECIDED THE ISSUE IN F AVOUR OF THE ASSESSEE BY FOLLOWING THE ORDER OF THE CHENNAI BENC H OF THE TRIBUNAL IN THE ASSESSEES OWN CASE FOR THE ASSESSMENT YEAR 201 0-11 IN ITA NO.2110/MDS/2014 VIDE ORDER DATED 06.08.2015. THE R ELEVANT PORTION OF THE ORDER IS REPRODUCED HEREIN BELOW FOR REFERENCE: - 4 ITA NO. 3040/CHNY/2016 12. THE APPELLANT ASSAILED THE DISALLOWANCE MADE AND SUBMITTED THAT T HE ISSUE WAS DECIDED IN FAVOUR OF THE COMPANY BY THE HON'BLE ITAT, CHENNAI VIDE ITS ORDER IN ITA NO.2110/MDS/2014 DATED 6.8.2015 FOR THE PRIO R AY. 2010-11. 13. I HAVE CAREFULLY CONSIDERED THE FACTS, ORDER OF THE AO, SUBMISSIONS MADE BY THE APPELLANT AND MATERIAL ON RECORD. I FIND THAT S IMILAR ISSUE IN APPELLANT'S OWN CASE FOR AY.2010-11 WAS DECIDED IN FAVOUR OF THE AP PELLANT BY THE HON'BLE ITAT, CHENNAI VIDE ITS ORDER IN ITA NO.2110/MDS/2014 DATE D 6.8.2015. THE HON'BLE ITAT HAS HELD AS UNDER: ' 6.1 .... ' .. AT THE OUTSET, WE FIND THAT THERE IS NO MERIT FOR THE REVENUE TO MAKE ADDITION OF RS.3,11,34,630/- INVOKING THE PROV ISIONS OF SECTION 14A OF THE ACT BECAUSE THE INVESTMENT MAD OF RS.71,55,33,5 70/-, BEARS NO COST IN THE FORM OF INTEREST OR WHATSOEVER, SINCE THE FUNDS BY WHICH THE INVESTMENT IS MADE IS ASSESSEE'S OWN FUNDS. FURTHER, THESE INV ESTMENTS ARE MADE ONLY WITH SISTER COMPANIES OF THE ASSESSEE AND NO COST C AN BE ATTRIBUTED FOR THE MANAGEMENT OF SUCH FUNDS. THEREFORE, WE HEREBY DELE TE THE ADDITION OF RS.3, 11,34,630/- MADE BY THE LD.ASSESSING OFFICER INVOKING THE PROVISIONS OF SECTION 14A OF THE ACT. THIS GROUND RAISED BY TH E ASSESSEE IS ALLOWED IN ITS FAVOUR. ' 14. REGARDING THE ISSUE OF DISALLOWANCE MADE U/S 14 A WHILE ARRIVING AT THE BOOK PROFIT FOR THE PURPOSE OF S.115JB(2), THE HON'BLE I TAT CHENNAI VIDE THE ABOVE REFERRED ORDER HELD AS UNDER: .... FROM THE ABOVE IT IS APPARENT THAT THE AFORES AID PROVISION OF THE ACT DOES NOT REFER TO ANY DISALLOWANCE MADE U/S 14A OF THE ACT WHILE ARRIVING AT THE BOOK PROFIT FOR THE PURPOSE OF SECTION 115J8(2) OF THE ACT. FURTHER SECTION 14A OF THE ACT IS A PROVISION WITH FICTION DISALLOWING THE DEEMED EXPENDITURE ATTRIBUTABLE TO EXEMPT INCOME VIZ., DIV IDEND INCOME U/S 10 OF THE ACT AND SECTION 115JB OF THE ACT IS ALSO A PROV ISION WITH FICTION FOR PAYMENT OF TAX IN RESPECT OF DEEMED INCOME. THEREFO RE WHILE COMPUTING THE PROFIT FOR THE PURPOSE OF SECTION 115JB OF THE ACT ANOTHER PROVISION WITH FICTION CANNOT BE SUPERIMPOSED. HENCE THE QUESTION OF INCREASING THE 'BOOK PROFIT' DUE TO THE DISALLOWANCE U/S 14A OF THE ACT WILL NOT ARISE. HOWEVER, IN THE INSTANT ASE OF THE ASSESSEE, SINCE WE HAVE ALRE ADY DELETED THE ADDITION MADE U/S 14A, INCREASING THE BOOK PROFIT WILL NOT A RISE ..... .. . FROM THE ABOVE DECISION IT IS CLEAR THAT WHILE COMPUTING THE 'BOOK PROFIT' OF THE COMPANY UNDER THE PROVISIONS OF SECT ION 115JB OF THE ACT; ANY DISALLOWANCE MADE UNDER THE NORMAL PROVISIONS O F THE ACT ALSO CANNOT BE GIVEN EFFECT TO FOR ARRIVING AT THE 'BOOK PROFIT ' FOR THE PURPOSE OF SECTION 5 ITA NO. 3040/CHNY/2016 115JB OF THE ACT. ACCORDINGLY, THIS GROUND RAISED B Y THE ASSESSEE IS ALLOWED IN ITS FAVOUR. ' 15. RESPECTFULLY FOLLOWING THE ABOVE DECISION OF TH E ITAT, THE GROUND RAISED IN RESPECT OF DISALLOWANCE U/S 14A UNDER NORMAL PROVIS IONS AND EXCLUSION WHILE COMPUTING BOOK PROFIT U/S 115JB IS ALLOWED. 4.2 SINCE THE LD.CIT(A) HAS ONLY FOLLOWED THE DECI SION OF THE TRIBUNAL ON THE IDENTICAL ISSUES IN THE ASSESSEES OWN CASE FOR THE EARLIER ASSESSMENT YEAR, WE DO NOT FIND IT NECESSAR Y TO INTERFERE WITH HIS ORDER. ACCORDINGLY WE HEREBY UPHOLD THE ORDER OF TH E LD.CIT(A) WITH RESPECT TO GROUND NO.(I) & (II) RAISED BY THE REVEN UE. 5. GROUND NO.2(III) : DISALLOWANCE OF REPAIRS & MAI NTENANCE EXPENDITURE:- DURING THE COURSE OF SCRUTINY ASSESSMENT PROCEEDI NGS, IT WAS OBSERVED BY THE LD.AO THAT THE ASSESSEE HAD DEBITED THE AMOUNT OF RS.4,68,31,841/- UNDER THE HEAD REPAIRS & MAINTENA NCE. ON VERIFYING THE BILLS, IT WAS OBSERVED THAT IT PERTAINED TO THE FINANCIAL YEAR 2009-10 RELEVANT TO ASSESSMENT YEAR 2010-11. ON QUERY IT WA S EXPLAINED BY THE LD.AR THAT THE PAYMENT WERE MADE DURING THE RELEVAN T ASSESSMENT YEAR AND THE BOOKS OF ACCOUNTS WERE MAINTAINED IN A CCORDANCE WITH THE METHOD REGULARLY FOLLOWED BY THE COMPANY YEAR AFTER YEAR. THE LD.AO REJECTED THE SUBMISSION OF THE ASSESSEE SINCE THE E XPENDITURE DID NOT RELATE TO THE ASSESSMENT YEAR 2011-12 AND ACCORDING LY DISALLOWED THE 6 ITA NO. 3040/CHNY/2016 EXPENSE. WHEN THE MATTER CROPPED UP BEFORE THE LD.C IT(A), THE LD.CIT(A) AFTER EXAMINING THE ISSUE ARRIVED AT THE CONCLUSION THAT THE ASSESSEE HAD BOOKED THE EXPENDITURE AT THE TIME OF CONSUMPTION OF SPARE PARTS WHICH WAS IN ACCORDANCE WITH THE METHOD OF ACCOUNTING FOLLOWED CONSISTENTLY BY THE ASSESSEE. WE DO NOT FI ND ANY INFIRMITY IN THE ORDER OF THE LD.CIT(A) ON THIS ISSUE. FROM THE ORDER OF THE LD.CIT(A), IT IS EVIDENT THAT THE ASSESSEE HAD NOT TREATED THE PURCHASE OF SPARES AS EXPENDITURE IN THE YEAR IN WHICH THE S PARES WERE ACQUIRED BUT TREATED IT AS EXPENDITURE IN THE YEAR IN WHICH THE SPARES WERE CONSUMED AND THE PAYMENT WAS MADE. THE PAYMENT FOR THE SPARES WAS ALSO MADE IN THE YEAR IN WHICH IT WAS CONSUMED. THOUGH THERE IS LAPSE ON THE PART OF THE ASSESSEE TO RECORD THE ACC OUNTING ENTRIES AT THE TIME OF HAPPENING OF EVENTS, THERE IS NOTHING WRONG IN THE METHOD OF BOOKING EXPENDITURE AT THE TIME OF CONSUMING THE SP ARES AS PER THE ACCEPTED PRINCIPLES OF ACCOUNTING WHICH IS CONSISTE NTLY FOLLOWED BY THE ASSESSEE YEAR AFTER YEAR AS THE EXPENDITURE HAS ONL Y CRYSTALIZED WHEN THE SPARES WERE CONSUMED DURING THE RELEVANT ASSESS MENT YEAR. THE LD.CIT(A) HAS ALSO OBSERVED IN HIS ORDER THAT THE C OMPANY HAS MAINTAINED PROPER RECORDS TO SHOW FULL PARTICULARS INCLUDING QUANTITY DETAILS, ETC., OF ITS ASSETS AND INVENTORY. HE HAS ALSO OBSERVED THAT THERE IS NO DISCREPANCY IN THE INVENTORIES RECORDED IN THE BOOK AND PHYSICAL INVENTORY. IT WAS ALSO CLARIFIED THAT THE CHARGE TO REVENUE WAS 7 ITA NO. 3040/CHNY/2016 ONLY MADE ON CRYSTALLIZATION OF THE LIABILITY. IT W AS ALSO OBSERVED BY THE LD.CIT(A) THAT COMPARED TO THE REPAIRS & MAINTENANC E EXPENDITURE INCURRED BY THE ASSESSEE DURING THE FOUR PRECEDING ASSESSMENT YEARS THE EXPENDITURE INCURRED BY THE ASSESSEE IN THE REL EVANT ASSESSMENT YEAR IS MUCH LOWER. THEREFORE WE DO NOT FIND IT NEC ESSARY TO INTERFERE WITH THE ORDER OF THE LD.CIT(A) ON THIS ISSUE. HENC E THIS GROUND RAISED BY THE REVENUE IS DEVOID OF MERITS. ACCORDINGLY WE UPHOLD THE ORDER OF THE LD.CIT(A). 6. IN THE RESULT, THE APPEAL FILED BY THE REVENUE IS DISMISSED. ORDER PRONOUNCED ON THE 8 TH NOVEMBER, 2018 AT CHENNAI. SD/- SD/- '# /CHENNAI, $% /DATED 8 TH NOVEMBER, 2018 RSR % '( )( /COPY TO: 1. /APPELLANT 2. /RESPONDENT 3. , ( ) /CIT(A) 4. , /CIT 5. (-. / /DR 6. .0 /GF ( . . . ) (N.R.S. GANESAN) /JUDICIAL MEMBER ( . ) (A. MOHAN ALANKAMONY) / ACCOUNTANT MEMBER